No Weather Excuses Here

We heard you loud and clear retailers, first-quarter misses were all about the weather.

Just when you thought you couldn't take the weather blame game any longer, Dollar Tree (DLTR) comes along with a clean quarter and raises guidance. No excuses necessary here.

Dollar Tree reported a first-quarter comparable sales increase of 2.1%, in line with estimates. But here is the impressive part: comps increased in every month of the quarter while most retailers experienced monthly volatility and were saved by April.

If that is not enough to get you excited about DLTR, the discretionary category actually outperformed consumables. This is in contrast to what the discount/dollar-store space has been reporting for as long as we can remember. The trend to a higher-mix shift of consumables has been dragging down gross margins in the industry. But for DLTR the strength in categories, including stationary and party, helped gross margins increase 20 bps year over year. Continued lack of inflation should also help with margin upside.

With the stock up 25% year to date, DLTR is still an attractive investment for 2013. The company continues to roll out freezers/refrigerators and has a runway of 50% of the store footprint ahead. This should continue to drive traffic and average ticket. This quarter, DLTR traffic increased 100bps and painted quite a different picture than what Wal-Mart (WMT) reported (traffic down 180 bps). Can you say market share story?

It's interesting that WMT pointed out pressure on cigarette sales this quarter as Family Dollar (FDO) and DG are rolling out the category. While DLTR does not stock cigarettes (that would be hard at $1 price point), it is hard argue consumers won't continue to migrate toward the convenient format.

While the company raised guidance yesterday, estimates are still conservative for the year. And don't forget compares ease into the second half of the year. I expect while most retailers will be looking for a blame game during the holiday, DLTR will once again tell us no excuses necessary.